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The Division of Swap Dealer and Intermediary Oversight authorized an US-based futures commission merchant to post customer-owned securities with its UK affiliate to margin its customers’ foreign futures and foreign options positions executed on a UK-based foreign board of trade and cleared through a central counterparty subject to oversight by the Bank of England as a “regulated clearing house.” As a condition for the DSIO’s relief, the UK affiliate of the US FCM indicated that it would deposit the US FCM’s customers’ securities in an individual client segregation account at the CCP as well as adhering to other conditions. The US FCM claimed it required the relief because under European rules a clearing member must have both legal and beneficial ownership of all securities posted with a European CCP as margin or must have customer consent to treat such securities as if it had such ownership. The DSIO said these requirements are inconsistent with its own rules that generally prohibit an FCM from commingling its own money, securities or property with its customer funds. (Click here to access CFTC Rule 30.7(e).)

Legal Weeds: The relief granted by the DSIO to the US FCM was in the form of a no-action letter. According to the CFTC, a no action letter “binds only the staff of the Division that issued it or the Office of the General Counsel with respect to the specific fact situation and persons addressed by the letter.”